Taxing times

Oct 12 2019


THAT hissing you hear is the sound of geese being plucked of their feathers. This is a painful process to obtain down for pillows, and has attracted the protests of many human rights organisations.

The reference is to Jean-Baptiste Colbert, finance minister under Louis XIV of France for nearly 20 years in the 17th century. He famously defined his taxation policy thus: “The art of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing.”

For decades, Pakistani traders, shopkeepers and industrialists have got away with paying virtually no taxes. I have often disagreed with Imran Khan and his PTI party over the years. I wrote against his often violent, non-stop movement to destabilise an elected government. I have also opposed his tawdry deal with the establishment. And as to most of his policies in the first year as prime minister, the less said the better.

It is estimated that only one in 200 Pakistanis pays income tax.

However, his ongoing campaign to register and tax Pakistan’s many fat cats has my full support. Over the years, I have heard many businessmen justify their tax evasion by claiming that as the state did not provide them with any services, they did not feel obliged to pay their taxes. But just as a goose does not get to choose which pillow its feathers will fill, seths don’t get to pick what tax rupees will be spent on either.

Another justification for non-filing that is often trotted out is from those who show off their attachment to the faith by going on Haj and umrah regularly. These worthies claim that as they pay zakat, they don’t have to pay any tax as this is not mentioned in the holy texts.

Salaried persons don’t have these excuses as their taxes are deducted at source. My (meagre) payment for these columns is also reduced according to government directives, and the deducted amount sent off to the tax authorities. No wonder Pakistan figures among the list of countries with the lowest tax collection in the world.

It is estimated that only one in 200 Pakistanis pays any income tax. This abysmal figure glosses over the fact the fact that few Pakistanis have incomes that takes them into the tax bracket. Also, practically everybody pays some form of indirect tax: whenever you buy a cold drink or a gallon of petrol, a number of levies are built into the price you pay.

Nevertheless, a large number of ‘high-value businessmen’ have large bank balances in Pakistan and abroad, and thus far, they have not been audited and arrested.

Many years ago, a friend and ex-colleague was in Washington, and called on a senior official of the Inland Revenue Service. When he complimented his American host on his country’s high tax collection rate and said it was probably due to the fact that Americans were law-abiding citizens, the IRS official laughed and said: “My friend, nobody wants to pay taxes until they have to. If tax dodgers didn’t get locked up, I assure you our tax collection would drop sharply.”

And this is the point. Our tax collection system is so riddled with corruption and inefficiency that large amounts end up in the pockets of income tax officers instead of the exchequer. They connive with businessmen to help them avoid paying their fair share.

Another lucrative loophole is connected to the long-running, nation-wide scam of property pricing. When a plot of land is being sold, its value is grossly understated to reduce the tax liability on the sale, with part of the payment being made in cash. For a consideration, the state officials involved in granting approval accept this fiction.

All this is common knowledge, of course, but politicians and officials, as well as buyers and sellers, have used many evasion techniques to deprive the state of revenue while fattening their own bank balances. Of course this kind of fiscal skulduggery goes on in other countries all the time, but it is rampant here as there are few deterrents in place.

I suspect the current tax-collection drive has been partly motivated by the establishment’s need for more cash. Our generals know that the economy has to generate more revenue for them to maintain a credible defence, especially at a time when the cost of high-tech military hardware is spiralling skywards.

Over the years, many young and idealistic readers have written to me to ask what Pakistan needs to do to have an independent foreign policy. I have always replied that to be free of outside pressure, we need to have a strong economy.

This takes me back to Colbert: “It is, simply and solely, the abundance of money within a state which makes the difference in its grandeur and power.”

But this abundance has been elusive: thanks to a runaway population growth rate, massive corruption and terrible leadership, we still need the proverbial begging bowl to survive.

Published in Dawn, October 12th, 2019